Quality is the Part of Basis You Can ControlImage may be NSFW.
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Generally, basis is the difference between the local cash price you can get at any given time from your elevator and the futures price on the Chicago Board of Trade. Unfortunately there isn’t anything simple about calculating all the factors contributing to basis. Many factors play a part in the price that farmers receive when they sell their beans.
Availability and transportation costs help to determine basis. Last fall, the lack of available railcars negatively impacted soybean farmers in the northern growing areas. Transportation considerations can also help basis, too. Farmers who farm near waterways can have a stronger basis than those who rely on roads to move their product.
Supply and demand in a farmer’s area also contribute to basis. A local biodiesel plant or poultry operation increases the local demand for soybeans, thus improving basis for farmers who sell their beans nearby.
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Another element that contributes to basis is the estimated processed value, or EPV. This is the value of the soybean meal, oil and hulls minus the processing costs. EPV essentially accounts for the quality of soybeans. Increasing the amount of the most valuable components, oil and protein, in a load of soybeans makes that load more valuable and increases the price that can be paid to the farmer. This also represents one area of basis where farmers have some control. By selecting seeds that are high in protein and oil, farmers can improve demand for soybeans and, in turn, the relative price that they receive.
